budgeting for yearly or semi-yearly expenses

You know these expenses are going to occur throughout the year. For car stuff, that's just a cost of owning a car- you know you're going to have to pay for repairs and car insurance. If you rent an apartment or own a house, you know you need to pay renters or homeowners insurance yearly.

But in my case- even though I know the charges will come yearly, I never budget for this stuff! It's always a surprise (and annoyance) when I have to repair something or change the oil. But it shouldn't be!! So I'm working on creating a 'sinking fund' for some of these expenses- beginning with car stuff.

According to a very legitimate source (aka Google) a sinking fund is defined as: "A fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset."

So perhaps what I'm doing is not quite technically a sinking fund because we aren't paying off a debt or replacing an asset, but the term pretty much fits what we're trying to do: Periodically setting aside money for an eventual expense.

Unrelated picture. I really like this pic! Taken last weekend in Buffalo- we took a road trip to visit Mike's family and ended up at a brewery... wahoo!

The logistics: where to store the money?

Option 1:

Set up individual savings accounts for each sinking fund. Some banks will let you do this; just make sure there are absolutely ZERO fees for the account! I'd hate to sign up for like 3 savings accounts and the next month find out that each one has a $10 account fee, haha.

Option 2:

If you can't open separate accounts, open at least 1 separate account (separate from your emergency fund-- don't want to accidentally use your emergency fund as your sinking fund!!) Put all your sinking funds into this account and keep a separate tracker so you know how much of the balance goes towards your car fund, your renters insurance fund, etc.

How to fund the sinking fund?

Here's my tricky part- I'm not quite sure yet now much I need to save into these sinking funds. I need to do some calculations to decide how much each month I should put away into each fund. For car stuff, I want to include car insurance, oil changes (need to figure out how many per year I usually get), car repairs (that's the trickiest of all- how much to budget when you don't know what will break?), and preventative maintenance (again- not sure how much that should be each year). Oh and property tax and registration and inspections. Oh! and you can expect to need new tires at some point... man this list just keeps growing ;)

This is the part that has so far stumped me and kept me from setting up the sinking fund. So I just need to sit down and start brainstorming how much I think I need... then just start DOING it! I can always tweak as time goes on :)

How to track this savings in your monthly tracker?

If you track your money (WHICH YOU DEFINITELY SHOULD!!!) this can be weird to account for. I'm going to track this by putting the, say, $50/mo, as an EXPENSE towards my "Auto & Transportation" budget. When I use the money, I will not track it at that point on my monthly tracker, because I have already tracked the initial expense!

However, knowing my obsession with spreadsheets, I'll probably create a separate "sinking fund tracker" so that I can keep track of how much is in the fund and how much I spend.

So the bottom line is that every month your spending looks like you're "spending" $50 on Auto&Transportation... when in reality, you might be spending $0 for 5 months and $300 one month... but your monthly spending will look more consistent.

What if you have to overspend?

You can use your emergency fund to make up the difference but then you MUST replenish it! So next month put the money into your emergency fund rather than the auto fund until it’s replenished. I’d also recommend writing a legitimate note to yourself about how much you borrowed and when/how you’ll pay it back to yourself. “I borrowed $125 from my emergency fund to repair my car. I will deposit $50/mo into my emergency fund until it is replenished.”

How do I use the sinking fund?

When an expense pops up that you'll need to use the sinking fund for, pay it as you normally would with your debit card or credit card. Then transfer the amount of money from your sinking fund into your checking account to cover the charge and reimburse yourself.

Okay- I get the logistics... but Why do I need a sinking fund? I already have an Emergency Fund!

Usually people talk about using their emergency fund to pay for car repairs. But an emergency fund is for things that are emergencies- aka unexpected. Losing your job unexpectedly? That's an emergency. Needing to replace your tires? Not an emergency- it's something you know will eventually need replacing if you own a car. So just budget for it!

I'm going to research how much I should be saving each month toward this car sinking fund and let you know what I've discovered :)

Long term budgeting is weird, I agree. But it’s necessary so let’s learn together!

What kinds of things do you KNOW happen yearly (or at least at frequent intervals) that you aren't budgeting for?

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